Spend Classification

Understanding your spend is impossible without a classification system that makes sense. Unfortunately, there’s no agreed-upon standard for classifying spend data. The closest thing to standard taxonomies are the UNSPSC classification and SIC. They’ve been adopted by just about every tool out there, but these so-called standards are utterly useless for Procurement.

What’s wrong with using a generic UNSPSC or SIC taxonomy for spend analysis? It’s simple. These taxonomies don’t offer any advantages or useful information to a procurement or sourcing professional. They are too granular in some instances, and too broad in others. They’re great resources for CPOs and CFOs that want to create fancy sales reports or run tax scenarios. For Procurement groups, however, the taxonomies offer nothing of use for developing category management or sourcing strategies.

The strategic sourcing consulting team at Source One have worked to solve this challenge for over two decades. We learned early on (back in the days of NAIC codes), that those classifications had nothing to offer Procurement teams. So, we built our own taxonomy. Our taxonomy focuses on classifying suppliers and line items to similarly-focused spend categories. It reveals synergies and strategies for effective sourcing.

The SpendConsultant and Source One taxonomy breaks spend into direct and indirect tiers and the category and sub-category level. With this three-tier structure, we can identify substantial cost reduction opportunities through strategic sourcing. That structure is easier to maintain, more cost effective, and ultimately more useful than UNSPSC or a similar classification.

We know what suppliers offer and realize that service offerings often grow complex and start to overlap. With a UNSPSC type taxonomy, you’ll find that spend classification becomes to granular and fails to offer useful information. We solved this challenge by creating our own Sourcing-focused taxonomy. Instead of looking at how the government, tax lawyers, or finance people want to classify a product or service, we look at the service offerings that the suppliers themselves support. We then cluster those service offerings into a category and subcategory-based structure that allows us to derive useful conclusions and sourcing strategies for managing spend.

UNSPSC, NAICS, or some other classification system is important to you? Don’t worry. We can still help. We can enrich your data with UNSPSC, and we can even use your own taxonomy. We’ll cross-map it with our own taxonomy to offer you a little of everything.

So How Do We Classify the Data?

In short, we work with what you give us. We can work with as little as supplier names and total spend. That, combined with information gained through interviews and past sourcing initiatives, will help us profile your organization and classify your spend.

We can work with very little, but the more information the better. It’ll help us provide the accurate information and classification you need to kickoff your savings initiatives. Additional points of data could include:

Don’t worry about cleaning that data or gaining buy-in from IT involved. We’ll do all the cleansing and aggregation for you while you focus on day-to-day responsibilities. In just a few weeks, you’ll have an actionable, procurement-friendly look at your spend.